Taylor Griffin's semi-regular and occasionally interesting observations on the economy, public relations, and politics.

April 2009

April 15, 2009

The Wall Street Journal has an interesting article this morning on Fed Chairman Ben Bernanke’s approach to public relations. Unlike his predecessors Alan Greenspan and Paul Volker, Bernanke has increasingly put himself out in front with high profile media interviews and speeches.

Bernanke’s approach is not without risks. The more information the Fed Chairman puts out into the public space, the more the Chairman’s pronouncements sound like white noise, diminishing the value of public statements as surgical instruments of monetary policy. Additionally, the volume of public interactions raises the chance of imprecise statements leading to unintended outcomes.

But does Bernanke really have a choice? Probably not. Bernanke’s approach reflects a new reality in which the U.S. government has essentially become the largest distressed investing firm the world has ever seen – and in which we are all shareholders. The Federal Reserve’s role has morphed into a massive financing machine for the government’s economic rescue efforts.

Dr. John Taylor of Stanford University estimates that if all the new Fed programs are to be fully funded with money creation, the Fed will have to increase reserves to more than $3,000 billion by the end of the year. By contrast, reserves were $8 billion six months ago according to Taylor.

Given the massive amounts of public funds being expended and the explosion in the Fed balance sheets, the stakes are huge. If all of this doesn’t work, the results could be catastrophic. Bernanke has a lot of explaining to do. It’s just as well that he gets started now. - Taylor Griffin